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Corporate Offshore Tax Dodging and How to Stop It

June 2013

U.S. Public Interest Research Group (U.S. PIRG)

Americans for tax fairnessSlide2

What’s at stake?

Ability to fund a government that makes critical investments

in future generations and takes care of those most in need

$150 billion in revenue lost each year to tax havens that could:Replace across-the-board spending cuts known as the “sequester” Avoid cost of living cut to Social SecurityPay for Pell grants for 10 million college studentsTax system corporations want is a race to the bottomShipping profits and jobs overseasLowering wages here at home


Corporate profits at record highs, Corporate taxes at record lows

Source: Federal Reserve Economic Data


People paying more, corporations paying less

Source: U.S. Office of Management and Budget


Corporate tax revenues have


hrunk a lot

Source: U.S. Office of Management and Budget 5Slide6

U.S. corporate taxes in middle of world pack (all govt. levels)




What federal income tax rate do corporations actually pay?

Statutory rate: 35%

(rate companies supposed to pay)

Effective rates (actually paid):All companies: 12.1% in 2011 (Congressional Budget Office)Fortune 500 companies: 18.5% in 2008-2010 (Citizens for Tax Justice)7Slide8

What happened? Tax havens cost U.S. taxpayers $150 billion a year


House, Cayman Islands

Address of 18,857 corporate entities 8Slide9

How U.S. corporations are taxed

“Worldwide” system of taxation

U.S. corporate income tax assessed on all profits everywhere

MINUS taxes paid to foreign countriesBut…companies can defer paying taxes on offshore profits until returned to AmericaCreates powerful incentives to disguise U.S. profits as “foreign” profits earned in tax havens with no or with low tax rates 9Slide10


Apple Inc: how tax dodging works

$74 billion profits earned offshore

(2009-2012); virtually untaxed using Irish subsidiaries

One Irish subsidiary: Not taxed by U.S. or Ireland. U.S. recognizes where incorporated (Ireland); Ireland recognizes who controls (U.S.) Second Irish company: Negotiated a tax rate of less than 2%. Apple transfers part ownership of its intellectual property created in U.S. to company allowing Apple to shift profits to Ireland.U.S.: Has 95% of R&D; 65% of employees; 35% of profits; controls Irish subsidiariesIreland: Has 1% of R&D; 3% of employees; claims 65% of profitsEffective U.S. tax rate: 7.3% counting untaxed offshore profits (2011)Source: U.S. Senate Permanent Subcommittee on Investigations


Corporate offshore tax avoidance has grown a lot

$1.9 trillion in U.S. profits sitting offshore avoiding U.S. taxes

Increased 70% over last five years

83 of top 100 publicly traded companies have subsidiaries in offshore tax havens43% of foreign earnings by U.S. multinationals booked to 5 tax-haven countries12Slide13

Corporations want to make the system even more unfair

Temporary tax amnesty: Repatriation tax holiday

Permanent tax amnesty: Territorial tax system


“Repatriation” tax holiday: temporary tax amnesty

2004 tax holiday given to return offshore profits

Corporate tax rate dropped to 5% -- down from 35% or a company’s effective tax rate

$312 billion brought back to U.S. – half by 15 companiesMost money came back from low-tax countries or tax havensNo new jobs or investment created – mostly went to stock repurchases and higher dividend payments $1.9 trillion offshore now waiting for new holiday14Slide15

Territorial tax system: permanent tax amnesty

Eliminates all U.S. taxation of corporate overseas income

Creates greater incentivizes to shift profits to tax havens

Benefits few companies in a few industries: high tech, pharma, banking Main Street and domestic businesses and individuals have to make up for lost revenueEncourages job loss and lower wagesHigher budget deficits: $130 billion over ten years15Slide16

Our solutions: End offshore tax dodging

Sen. Sanders bill, S. 250/Rep. Schakowsky, HR 694

Ends “deferral” – ability of companies to delay paying taxes on profits offshore until returned to U.S.

Raises $600 billion over 10 years; 60% of the across-the-board spending cuts (“sequester”)Levin bill, S. 268Closes worst offshore loopholes allowing companies to shift profits overseasRaises $150-200 billion over 10 years16Slide17

A winnable fight

Public strongly with us


73%-25%: Voters approved of closing loopholes allowing corporations and wealthy individuals to avoid paying U.S. taxes by shifting income to overseas tax havens By 73%-20%: Voters opposed allowing corporations to not pay any U.S. taxes on profits that they earn in foreign countries – essentially rejecting the basis of a “territorial tax” systemPowerful and diverse constituencies on our sideFront page issueSource: Hart Research Associates, Jan. 2013 17

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Corporate Offshore Tax Dodging and How to Stop It - Description

June 2013 US Public Interest Research Group US PIRG Americans for tax fairness Whats at stake Ability to fund a government that makes critical investments in future generations and takes care of those most in need ID: 157034 Download Presentation

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